Geographical proximity and renewable energy diffusion: An empirical approach

Highlights: • We construct a distance-weighted index of renewable energy intensity of neighbours. • Cross-country diffusion of renewable energies has a spatial dimension. • Proximity to intensive renewable energy adopters helps explain convergence. • Trade with renewable energy adopters increases effect of geographical proximity. • The importance of proximity on renewable energy diffusion diminishes over time. -- Abstract: In an era where achieving both economic growth and environmental sustainability is paramount, the role of technology diffusion remains an important one. Recent literature explores the link between geographical proximity and the adoption and diffusion of climate change adaptation policies. However, it has generally focused on a restricted set of developed countries and focused on the diffusion of policy instrument rather than the outcome of the policies. In this paper, we argue that domestic intensity of adoption of renewable energy technologies is likely to be affected by the adoption pattern in neighbouring countries. Additionally, this effect is likely to be stronger when important trade partners are intensive adopters of renewable energies. To test these hypotheses, we construct an index that captures a distance-weighted measure of intensity of renewable energies in other countries and apply a fixed effects framework to a panel of up to 116 countries over the (1980–2012) period. Our results confirm the existence of a geographic spill-over effect on the intensity of adoption of renewable energy technologies. Moreover, this effect is stronger when intensive adopters of renewable energies are also important trading partners, highlighting the relevance of trade channel as a potential catalyst of the diffusion of renewable energies across countries.